Economics, politics, law and ranting - Got it covered?
No more nice....no sugar, no spice. The world sucks and here is my take on how to fix it....

Monday, January 28, 2008

Walking away or business decision

It is clear that I am all for personal responsibility. And, I work for a bankruptcy attorney; and that attorney helps people in foreclosure.

Last night, 60 Minutes had a piece on the "sub-prime" mess. Of course, those of us in the know, know, it is not just sub-prime that is the problem.

One of the couples in the 60 minute piece are planning on walking away from their home because the value has dropped below the mortgage amount. Steve Croft seemed upset because the couple could afford the higher payment that had come with their adjusted rate mortgage, but they just didn't want to pay it.

But bear with me here: if a corporation had a contract to purchase 1 million pieces of equipment at $1.00 a piece over a couple of years and they found a supplier willing to provide the same pieces for $.75, would ANYONE begrudge the corporation their change? Assuming the contract to purchase had some penalty for not buying all million pieces, everyone would agree that the optimum business decision would be to get the less expensive supplies.

Why is owning a home different? There are penalties for failing to pay the whole contract, but if a reasonable person views the situation and determines the penalties are less than the future savings....why wouldn't you 'walk away'.

People for years have been trying to argue that buying a home should be a rational decision, not just a emotional one. Well, if people rationally believe walking away from a home that is losing 10, 20, 60% of it's value makes economic sense...why all the hand wringing?